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Tax Preparers' Fraud: What to Watch For

February 17, 2010

SEATTLE - It's income tax season again and, for some people, the only thing worse than rounding up all their receipts and documentation, is finding out too late that they hired someone to do their taxes who was either unqualified or simply trying to rip them off.

Last year, the Internal Revenue Service (IRS) prosecuted more than 200 people for being bogus tax preparers, including several in Washington and Oregon. The IRS investigations division is already busy checking up on a new crop of tax scams, ranging from filing false returns to convincing clients they didn't need to pay income taxes.

Taxpayers are handing over their Social Security and bank account numbers, investment information and more to their tax preparers. So, before they choose one, they should do their own 'investigation,' according to Richard Panick, field media relations specialist with the IRS.

"That is one of the things we warn people about every year: Be very careful when a preparer is basing their fee on a percentage of a promised refund. Or, a preparer who promises they know something special and can get more money for you than anybody else."

He also says you should plan to sit with the preparer as your taxes are being done - and never just sign a blank form and trust them to file it.

Panick says it's also a problem if a part-time tax preparer isn't around months later to help, in case a letter comes in from the IRS questioning something on the return. It would definitely be a letter, he adds, never an email message.

"If they get an email that is purportedly from the Internal Revenue Service - it's not. We do not initiate taxpayer contact electronically. If they get such an e-mail, they can send it in to the Internal Revenue Service at phishing@irs.gov.

Panick says only CPAs, enrolled agents and attorneys are allowed to represent taxpayers if their returns are questioned by the IRS.

The agency says about 80 percent of those who hold themselves out as tax professionals and are caught filing fraudulent returns end up serving some prison time.